Introduction: The Bombay Stock Exchange (BSE) launched the Shariah Index in 2010. This index comprises 50 stocks selected from the BSE-500 bracket. It is known as the ‘BSE Tasis Shariah-50 Index.’ The selection criteria for this index involve adhering to Shariah principles, which have strictures regarding financial and commercial activities permitted for believers in Islam.
Composition: The Shariah Index includes stocks from sectors such as infrastructure, capital goods, IT, telecom, and pharmaceuticals. The index is designed to attract investments from Arab and European countries, where Shariah-compliant funds are popular. Arab investors, in particular, follow Shariah principles and avoid investing in stocks of companies involved in activities like alcohol, conventional financial services, entertainment, tobacco, pork meat, defense, and weapons.
FAQs
Q1: What is a Shariah Index?
A: A Shariah Index is a financial tool designed to track the performance of Shariah-compliant stocks or investments. These indexes include companies that adhere to Islamic principles and avoid industries such as alcohol, gambling, and tobacco.
Q2: How is a Shariah Index constructed?
A: Shariah Indexes are constructed by screening stocks based on Islamic principles, including prohibitions on interest (riba), uncertainty (gharar), and unethical business practices. A Shariah advisory board typically oversees the screening process to ensure compliance with Shariah law.
Q3: What are the benefits of investing in a Shariah Index?
A: Investing in a Shariah Index allows individuals to align their investments with their ethical and religious beliefs. Additionally, Shariah-compliant investments often exhibit resilience during economic downturns due to their conservative nature and avoidance of highly leveraged or speculative industries.
Q4: Are Shariah Indexes restricted to Muslim investors?
A: No, Shariah Indexes are not restricted to Muslim investors. Many non-Muslim investors are attracted to Shariah-compliant investments due to their ethical framework and potential financial stability.
Q5: How do Shariah Indexes perform compared to conventional indexes?
A: The performance of Shariah Indexes can vary depending on market conditions and the specific criteria used for screening. However, studies have shown that over the long term, Shariah-compliant investments can deliver competitive returns compared to conventional indexes while maintaining adherence to ethical guidelines.
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